CafePress Makes a Depressing Impression

CafePress (Nasdaq: PRSS) may have its place, but I'm pretty sure it's not in investors' portfolios. The company -- which also calls itself "The World's Customization Engine" and offers customized merchandise like T-shirts, magnets, and other items via e-commerce -- may be more fun as an occasional online shopping stop than as a stock idea.

Since CafePress went public last spring, its shares have fallen precipitously from a 52-week high of $22.69. Maybe I should have said something sooner, because I'd recently noticed that CafePress blasts out so many sales via email campaigns that it's been tempting to wonder if its business hasn't been doing so hot.

Sure enough, CafePress recently reported a third-quarter net loss of $2.4 million, or $0.14 per share, a much worse showing than this time last year, when its net loss was $0.5 million, or $0.06 per share.

Net revenue increased 19% to $43.6 million. CafePress mentioned a 13% increase in customers and a 13% increase in orders in its press release. However, bear in mind that gross profit margin fell to 41.4% of revenue, versus 43.1% this time last year. Furthermore, CafePress had a 29% increase in customers and a 37% increase in orders in the third quarter of 2011.

In other words, CafePress' business is slowing down even though, as a publicly traded company, CafePress has just barely begun.

Don't get me wrong; the CafePress idea is a cool one. Obviously I've used it (otherwise I wouldn't receive its seemingly endless marketing emails), and I'm not sure where else I would have gotten my Charles Bukowski magnet, "I don't hate people. I just feel better when they aren't around." Still, cool businesses aren't always great investments.

CafePress's competitive risks are prominent given the large and fragmented market for customized products and services. In its IPO filing, the company counted online giants (and early "long tail" merchants) Amazon.com (Nasdaq: AMZN) and eBay (Nasdaq: EBAY) as rivals, as well as younger online artistic commerce hub Etsy. It also cited traditional offline printing businesses and specialized companies like VistaPrint and Shutterfly.

Maybe CafePress' worst threat of all is the overall economic uncertainty in the U.S. and abroad. Less discretionary spending doesn't bode well for a company that relies so heavily on whimsy.

This year has produced a wellspring of disappointing IPOs with major name recognition. Groupon and Facebook spring to mind, both with serious red flags and challenges so early in their public existences. Just because some IPOs sound like "neat businesses," or even provide services we use or even love in our consumer lives, doesn't mean they're great businesses and good investments.

CafePress shares currently trade for about the same price as an "I Want to Believe" sticker on its site, but investors should take care and rethink any temptation to believe in this IPO stock until it shows more heartening growth trends.

Everyone knows Amazon is the big, bad wolf in the retail world right now, but at its sky-high valuation, many investors are worried it's due for a correction. We'll tell you what's driving the company's growth, and how to know when to buy and sell Amazon, in our new premium report. Our report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.